Lot Lines: Industrial upside

I was honored to speak at the Risk Management Association’s monthly luncheon recently. This organization is focused on advancing the use of sound risk principles in the financial services industry.

My colleague and co-presenter, Darin Dalbom, provided the group with valuable valuation guidance. As professionals who research the local real estate market, I hope we were able to provide some clarity in evaluating the risk parameters in our metropolitan market.

This year, we continue to list the industrial sector as having the biggest upside in our marketplace. As I have written about in the past, the last-mile, as we call it, is huge. The last mile is essentially the final step in delivery between the online retailer and the client. Warehouses are now fulfillment centers with distributors wanting to get closer to those clients. Next-day is so yesterday; everyone wants it today. This dynamic is advantageous for secondary markets like Oklahoma City.

The online purchase is important to expanding warehouse activity; however, the local disrupting factor is the passage of medical marijuana in Oklahoma. To predict what influence marijuana might have on the industrial market we took a look at Denver. In Denver, there are 589 marijuana-growing facilities. These properties occupy over 4.2 million square feet of commercial space, which equates to over 4 percent of total industrial space. While 4 percent is not a huge percentage of the total industrial space, it is estimated that it consumes about 40 percent of the Class C and D properties. These properties are the least desirable and lower industrial tier as far as quality. They tend to have low ceiling heights, challenging deck heights, and limited use in today’s efficient warehousing operations. Turns out, marijuana is a unique industrial use and actually benefits from low ceiling heights and users will pay more than double to lease suitable industrial spaces than conventional users will pay.

Retail is a sector to look upon with caution, but again the passage of medical marijuana is changing the Oklahoma retail strip mall space right before our eyes. We will continue to see a marketplace with preferences toward online purchasing that will result in smaller square footage for retailers. These smaller spaces will also be in high demand for the hundreds of the marijuana dispensaries that will be needed once this industry matures.